This afternoon, AMD announced their third quarter earnings for the 2018 fiscal year, and while there are a couple of issues they’ll have to work through, this quarter was another strong one from the company. Revenue was up 4% year-over-year to $1.65 billion, and possibly more importantly, AMD achieved a gross margin of 40%, which is up 4% from a year ago. That’s a big win for the company which struggled with margins over the last several years, dipping to as low as 29% in Q4 2014. Operating income was up 26% to $150 million, and net income was up 67% to $102 million. This resulted in earnings per share of $0.09, up 50% from a year ago.

AMD Q3 2018 Financial Results (GAAP)

Q3'2018

Q2'2018

Q3'2017

Revenue

$1653M

$1756M

$1584M

Gross Margin

40%

37%

36%

Operating Income

$150M

$153M

$119M

Net Income

$102M

$116M

$61M

Earnings Per Share

$0.09

$0.11

$0.06

AMD attributes the growth in gross margin to the launches of new products like Ryzen and EPYC, but also due to IP related revenue, which accounted for half of the gross margin increase. While that revenue stream may not last, even without it, 38% puts them in a much better position than they have been previously.

Looking at their segments, Computing and Graphics saw revenues climb 12% year-over-year to $938 million, and the segment had operating income of $100 million, up 37% from a year ago. Strong Ryzen desktop and mobile sales were actually offset though by lower GPU revenues with the fall of the cryptocurrency market. AMD says that blockchain revenue for this quarter was negligible, and it’s unlikely to grow with the current state of cryptocurrency. What this does lead to though is AMD having a glut of products in the channel where crypto sales haven’t happened, which is likely to impact upcoming quarters.

AMD Q3 2018 Computing and Graphics

Q3'2018

Q2'2018

Q3'2017

Revenue

$938M

$1086M

$835M

Operating Income

$100M

$117M

$73M

AMD’s other major segment is Enterprise, Embedded, and Semi-Custom, which helped them with the lean years thanks to AMD wins in both the Xbox and PlayStation. Revenue for this segment was $715 million, down 4.5% from a year ago. Operating income was $86 million, up 16.2%. The lower revenue is due to lower semi-custom product and IP related revenue, which isn’t surprising given how long the consoles have been on the market. This was offset though by increase server sales with EPYC, and the additional EPYC sales also helped with the margins, thanks to enterprise offering much better returns than consumer plays. AMD has also said their Radeon Instinct line of datacenter graphics products also were a key factor to their income growth this year.

AMD Q3 2018 Enterprise, Embedded, and Semi-Custom

Q3'2018

Q2'2018

Q3'2017

Revenue

$715M

$670M

$749M

Operating Income

$86M

$69M

$74M

Looking ahead to next quarter, AMD expects revenue to be $1.45 billion, plus or minus $50 million, and non-GAAP gross margin to be 41%.

50 Comments

I wouldn't say AMD's GPU production backfired, it's just that things are back to normal levels and we don't see hundreds of millions in surprise sales on top of the regular sales.

The best part is that, even if the crypto-bubble sales were huge and unsustainable and volatile, AMD has covered 90% of that revenue with stable, reliable, constant, continuous CPU, APU and server CPU sales with higher margins.

They did it by the book!

If crypto bubbles up again, you can add another billion in the mix, just as a bonus.

If it doesn't, then the CPU/APU sales will continue to grow at a steady, stable pace.Reply

Kudos to that..AMD has been doing exactly what they have set out to do via Dr Lisa Su leadership. here is hoping they maintain/exceed $26.5 USD into next year...was really hoping for them to crest $40 per share, but analyst/investor firms are even more biased then average client base.

apparently they do not see a company that was "dying" for a number of years skirting the grave to becoming once more a force to be reckoned with. Intel is able to basically maintain their standing of valuation and Nv has been more or less non stop vastly overvalued IMO solely based on GPU sales where AMD does the "entire" system and just cannot seem to "get a break" in regards to how much analyst/investor think they are worth)

I guess AMD would have to get 100% market share of CPU and GPU to be "worth" and hold $40+ where Nv and Intel can totally fk up and e worth triple valuations (which they have both done but seems like them "firms" have their full blinder set on constantly)Reply

AMD is turning a profit now, great. Nvidia turned a net profit of 1.1 BILLION in Q2 of 2018. And nvidia doesnt have a zen chip to sell. Intel, despite zen competition, earned 5 BILLION in the same quarter.

You wanna know why AMD's share price is so low? Thats why. Intel makes more in a week then AMD does in a year. That is why intel and nvidia are worth so much more, they make a lot more.

When AMD is making 500-600 million a quarter in net profit, then their share price will skyrocket upward. Reply

The real problem was that with HBM2 prices being sky high, it drove up the cost of Vega based video cards by $100 or more(I am not counting the war profiteering we saw from those selling cards to the public). So, a $500 card was selling for $600-$650 due to the HBM2 memory price. That drove down interest by the general public, because Vega 64@$500 was a decent value, and still is. Now there is the "wait and see" that many took to the Geforce RTX cards, so there were going to be fewer sales of ALL cards until the true reviews came out.

Due to the price of the RTX 2070, 2080, and 2080Ti being higher than many expected, $500 for a Vega 64 is still a decent price for the performance, especially when it comes with a game bundle. There are always certain seasonal things that happen as well that are often not mentioned. When do partners stock up on parts is the real question. Right now, this is the pre-holiday season, and inventories of parts to sell are being put together for the holiday season. In order to meet the demand, GPU manufacturers would need to have enough supply of parts, so how big was their existing stockpile of components? Vega not selling well due to the HBM2 prices driving up board prices would result in there being a lot of GPUs still in inventory to put on boards. This means that orders at this time of the year will actually be down due to the time it takes from product production to packaging to distribution channel to the final destination. This is the whole, "seasonal" nature of certain things.

As mentioned, the consoles have been around for a long time, and how many were selling and how many are in inventory will also be an issue, because if the consoles have been made and in warehouses, the console makers don't need additional chips for them. The build-up for production would have been back in June. Again, seasonal stuff, but also product life cycle stuff since there are no new consoles gearing up for launch.

Year to year, AMD is doing ok, this is just a strange time of the year, and AMD doesn't have a BIG product launch for new video cards to drive up demand for new product.

Come next year, Navi will probably be a big driver of sales, and the GPU side will see a big surge.Reply

Most companies are running on debt and continue to run on debt for decades sometimes until they become profitable. Amazon was one previously and Netflix is another that is drowning in $8.34 billion of debt.Reply

Yeah debt is a good thing for big companies to have as it protects them from the banks that leant them all that money. If you owe the banks say $5 billion then there is no way they are going to call you up one day and go "we are shutting you down!" when the company has maybe a $100 million in cash and assets.